MACD Analysis Signals
Developed by Gerald Appel,
The MA Convergence/Divergence is one of the simplest, reliable, and most commonly used trading indicators.
It is a momentum oscillator & also a trend-following trading indicator.
Construction
The construction of this technical indicator calculates the difference between two moving averages and then plots that as the 'Fast' line: the a second 'Signal' line is then calculated from the resulting 'Fast' line & then drawn on the same panel as the 'Fast' line.
- 'Fast' line - Blue Line
- 'Signal' line - Red Line
The 'standard' MACD values for the 'Fast' line is a 12-period exponential MA and a 26-period exponential MA and a 9-period exponential moving applied to the fast-line, this plots 'Signal' line.
- Fast-line = difference between 12 & 26 exponential MAs moving averages
- Signal Line = Moving Average of this difference of 9-periods
Forex Analysis and How to Generate Trading Signals
The MACD is commonly used as a trend-following trading indicator & works most effectively when interpreting trending market movements. three common techniques of using MACD to generate trade signals are:
Forex Cross overs Signals:
Fast-line/Signal-line Crossover:
- A buy trade signal is generated when Fast Line crosses above Signal Line
- A sell trading signal is generated when FastLine crosses below Signal Line.
However, in a strong trending market this signal gives a lot of whipsaw fakeouts, the best cross-over to use would thus be the Zero Line Crossover Signal that is less prone to whipsaw fakeouts.
Zero Line Crossover Signals:
- When the Fast Line crosses above zero centerline a buy trade signal is generated.
- when the FastLine crosses below zero centerline a sell trading signal is generated.
Divergence Trading:
Looking for divergences between the MACD & price can prove to be very effective in spotting the potential reversal and/or trend continuation points in price movement. There 2 types of divergences:
- Classic Divergence Trading Setup Signals
- Hidden Divergence Setup Signals
Over-bought/Oversold Conditions:
MACD indicator is also used to spot potential overbought-over-sold conditions in price action movements.
These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that price action is over-extending & it will soon return to more realistic levels.
MACD & MA Cross over System
This indicator can be combined with others to form a tradingtrade system. A good combination with the Moving Average crossover system. A signal is generated when both give a signal in same direction.
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